Saturday, December 8, 2012

Account 8030, 7/12/2012


Add on one SGX A50 contract for the account on the 4th December. This contract is a basket of 50 blue chip Chinese stocks listed on SGX for overseas traders, since non Chinese individual traders are not allowed to participate in the Chinese Futures market.

This is a damn bloody small futures contract (mini) worth only about USD 7,000 at the time of entry. I hated all these mini contracts because it's meant more for gamblers and not investors. A decent size futures contract should be worth at least USD 30,000 to USD 50,000. Exchanges are introducing more mini contracts so that they can generate more volume thus earning more comm. To hold USD 50,000 worth of stocks,  a trader would need to buy 7 contracts paying a much higher comm amounting to USD 5.60. For the retail trader the comm would probably be 5 times more.

A CME Euro currency contract is worth USD 125,000 and the comm that I am paying is only USD 2.30, obviously trading the CME contract cost very much less in comm. These old contracts were introduced more than 20 years ago and contracted quaterly, March, June, September and December. The investor can hold the contract for 3 months then roll over to the next future month if they want to continue holding on to their view. But contracts introduced now are all monthly, reason being Exchanges make more money from long term investors rolling over their positions.

Futures contracts were first introduced in 1864 for the main purpose of hedging. In order to grow this industry, thousands of contracts were since being introduced by the various Exchanges with contract size getting smaller and smaller.

The cost of trading is a very  important factor to the success of a trader, if the comm and spillage is too high, most likely the short term trader will not succeed.

34 comments:

coconut said...

was futures contract first introduced in 1864?

i was told futures contracts were long existed even before the tulip mania (17 century). tulip mania was the results of ordinary people speculate in futures contracts.

coconut said...

i know i know, i should have google first before i say anything!

it just common sense, even acient people would have know too.

if i'm a seller of any commodities, i wouldn't wait for the harvest to get my supply, it will be too late, i'll get my supply through futures contracts.



KAW said...

oh oh we have this question in afact forum recently...answer is dojima rice exchange in Japan first to start in early 1700. incidentally also the birthplace of japanese candlesticks analysis...

Fat88Trader said...

Oops, yes the first futures contract was started in Japan during the 1730s, CBOT started in 1864, my mistake.

coconut said...

recently there is this documentary "history of mankind" where "tulip mania" was one of the event highlited in modern history.

futures contracts was introduced in a big way and more organised manner cos of hugh demand in tulips. many people buying up, not tulip pulps but a piece of futures contract, they never intend to take delivery but to sell when prices go up. many make fortunes.



coconut said...

a blogger was asking me, "hey coconut, why so quiet lately, hiding in a corner waiting to strike?"

ya right!

i'm busy counting nails that are sticking behind my back! luckily these nails are small, still got to get them out before they got me inffected haha.

Singapore Man Of Leisure said...

Hello coconut and KAW,

You are both "right".

Dojima is the first futures EXCHANGE technically speaking.

No one really knows for sure when the first futures contract is made.

An arranged marriage is a futures contract of sort in ancient china.

2 sets of parents with newborns are good friends.

When your ah boy grows up at age 20, my ah girl will marry him. On?

Then they exchange tokens of this "agreed futures contract".

LOL!

coconut said...

hello, we are talking about commodities trading here!

Singapore Man Of Leisure said...

No imagination :)

Come to think of it, humans were once upon a time traded like commodities too.


coconut said...

no wonder terms like samurai or ninja (turtle) usually associate with good trading technic or traders.

they had been trading (rice) for so long.

coconut said...

you are right SMOL, slave trades was once a very profitable and legal business.

Fat88Trader said...

Yes agreed, arrange marriage is a futures contract but no fix time for delivery and no guarantee either party will honour the contract.

Singapore Man Of Leisure said...

Yes.

Early "futures contract" between 2 individuals were more like "options" since sort of dragging the other person to court, it's more a gentleman's agreement.

With the establishment of exchanges (removing counterparty risks in theory); and offering standardised contracts (so speculators can join the fun without worrying who will want the same 69 kg of rice exactly?), we have what we have today.

It's evolution; not revolution :)

Singapore Man Of Leisure said...

Fat,

I just came back from the market and saw at around 10:10:43, the simsci went as low as 302??? for the Dec contract.

Is this a trading error? Shit! Would have made money if I was not out :(

KAW said...

Hohoho, it seems so as always...durian fallen...Yum!

Fat88Trader said...

Yes must be some error in execution, big order and trigger all the way down.

But the price was later adjusted back to 3517 by SGX to protect the institution that made the stupid mistake.

Suppose to be Cat Mountain durian for some traders, now become Ang Mo durian, curse and swear.

coconut said...

SMOL, how come never put limit orders? where were your target price?

Singapore Man Of Leisure said...

1) Thanks Fat! So it's a fat finger error ;)


2) coconut,

I not affected. Was away in the morning.

Just curious. Imagine if I could long around 310 and cover at 357 today :)

Really huat man!

LOL!

KAW said...

Chey kelong! Like that also can ahh?! What an eye opener...

coconut said...

SMOL,

you sound like there is a bullet in your head! i though you were still holding your short, no?

Singapore Man Of Leisure said...

Bullet in head?

Yes, I got short positions in the SIMSCI Dec and Jan contracts.

coconut said...

so why did you say you were not affacted? becos you didn't lose money?

coconut said...

and so why didn't you put limit orders?, or are you using trailing stops? where is your target price? or do you have any plan at all?

wah so many ????

Singapore Man Of Leisure said...

Oh! This is what you meant!

Eh... Did you profit from the fat finger incident?

coconut said...

haha pointing my arrow back at me eh?

if i have a (short) position, without a doubt! but unfortunately i do not.

if it happen in the stocks i short, i will profit from it. but unfortunately it don't happen all the time.

you didn't get what i meant do you? just forget what i ask.



Singapore Man Of Leisure said...

Thanks!

I think I get you meant ;)

That's what came to my mind too; but after Fat explained that the price was "adjusted" by SGX to 351.7; it's just an academic exercise...

My mental profit target is lower than that price ;)

You are more systematic inclined; I am discretionary biased :)

coconut said...

oh ok, i forgot how a discretionary traders work. been a system trader for quite a while.

but still systematic or discretionary, you still need a plan and thats why i'm asking you.

Singapore Man Of Leisure said...

True.

Phew! Last night FMOC turned out what I expected. News baked into the price already ;)

If not, today I would be busy plucking out nails! LOL!

I think the most is break-even or coffee money for my Dec contracts.

Let's see if my Jan contracts will play out better.


coconut said...

what FOMC meeting? i mised that one haha!

there are 2 important points here SMOL,

1, i understanding you trade discretionary, but more of instinctive by watching the price moves and decide entry and exit. that's not easy even with a mental plan. it will wrack your phycology.

2, if you have a position and with a opportunity like that, you have to take it and keep it. becos one of these days, your position will not be so lucky that they are on the right side of the trade and it gonna burnt a big hole in you, so take it and keep it.

Fat88Trader said...

Wow, you guys are so bearish, I need to be more becareful with my long view.

coconut said...

haha, not that bearish.

i got long stocks also (luckily), as for SMOL, i think his shorts is to "hedge" against his stock portfolio, that is why he is taking it easy haha. i'm only remainding him to take advantage of the spread if it happen.

Singapore Man Of Leisure said...

Yes,

I am hedging the equities part. So it's not nett short. Just "protecting" the paper profits.

If bearish, I would be 100% in cash!

coconut said...

no, you should short if you are bearish.

Singapore Man Of Leisure said...

Opps! I spoke too soon in the morning...

Afternoon STI power!

If this goes on, I'll hot my stops soon :(